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Asset managers and investment managers, financial planners and financial coaches: It’s enough to make you want to bury your money in the yard. But don’t fret. There are four simple rules that will help you figure out which types of financial advisors to use and which to avoid.
Financial advisors: The good, the bad and the unregulated
The U.S. Securities and Exchange Commission rules state that any financial professional or firm that engages in the business of providing advice to others or issuing securities reports or analysis for compensation is technically an "investment adviser" and must register with either the SEC or their state, depending on the advisor’s assets under management.
But other titles and forms of advice are largely unregulated, and that puts the responsibility on the investor to know what to look for. Here are some guidelines:
Titles may mean nothing. Some of the most common titles advisors use — including the term "financial advisor" itself — aren't tied to any specific credentials. Don’t assume that someone who uses an official-sounding title has specific training, credentials or registration.
Know what kind of advice you need. Identifying what you want from an advisor can go a long way in finding the right fit for you. For example, if you need help with taxes, you should look for an advisor who specializes in tax work and has a certification to match. If you only want investment management, a low-cost service like a robo-advisor might be the best fit. (Learn more about how to choose a financial advisor.)
Find a fee-only fiduciary. Some financial advisors have a fiduciary duty to their clients, meaning they are obligated to act in their client’s best interest rather than their own. We recommend that you always work with a licensed, registered fiduciary — preferably one who is fee-only, which means the advisor is paid directly by you and not through commissions for selling certain investment or insurance products.
Vet your advisor. No matter what title, designation, certification or license an advisor claims to have, it’s on you to vet the advisor’s credentials and experience. Always research an advisor’s background before you agree to work with them. We've included resources for doing that below.
Looking for an advisor? Jump to details about online financial planning services with access to CFPs or robo-advisors.
7 types of financial advisors
Below are the most common kinds of financial advisors and what they do.
1. Investment advisors: While "investment adviser" is the legal term used by the SEC to denote a financial professional who must be registered, it is also used frequently as a job title — and is more commonly spelled "advisor." An investment advisor is a person or company who is paid for providing investment advice to clients. Investment advisors can also manage client assets directly. You can — and should — verify an advisor’s registration through BrokerCheck by FINRA, the Financial Industry Regulatory Authority.
2. Broker-dealers and brokers: A broker-dealer is an individual or company that buys and sells securities such as stocks, bonds and mutual funds. Broker-dealers can buy and sell on behalf of clients (in which case, they’re acting as a broker), for their own account (as a dealer), or both. In addition to registering with the SEC, broker-dealers are also usually members of FINRA.
The financial products a representative for a broker-dealer can sell depends on their licenses. For example, a broker-dealer who has passed the Series 6 exam is limited to selling mutual funds, variable annuities and related products. A Series 7 license allows the holder to sell additional securities. BrokerCheck can also be used to verify brokers.
3. Certified financial planner: Financial advisors who are CFPs have met the rigorous training and experience requirements of the CFP Board, have passed the certification exam and are held to high ethical standards. CFPs have a fiduciary duty to their clients.
Financial planners can offer services that don’t require regulation, such as guidance on how to pay down debt, plan for retirement or create a budget, but some are also investment advisors. Note that financial advisors can use the title "financial planner" without holding the CFP designation. If you’re specifically looking for a CFP, be sure to check their credentials with the CFP Board.
If you need a financial advisor, NerdWallet recommends working with a CFP whenever possible. Check out some of the best online financial planning services that include access to CFPs below.
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4. Financial consultant: Financial consultant is a general term that can be used by anyone. But some financial consultants hold a designation called a chartered financial consultant, or ChFC. Chartered financial consultants have completed similar education requirements to CFPs. ChFCs have a fiduciary duty and must adhere to The American College’s code of ethics. You can verify a ChFC's credentials here.
5. Financial coach: Financial coaches are often the most beginner-friendly financial professionals. Financial coaches focus on the basics of financial literacy, such as how to save money or reduce spending. Financial coaches can help their clients build wealth that an investment advisor may help them manage in the future.
6. Investment, portfolio and wealth managers: Whether the business card says wealth manager, asset manager, investment manager or portfolio manager, these professionals do exactly what it sounds like: They manage client investment portfolios.
There are some distinctions between the titles. For instance, wealth managers typically work with very wealthy clients and offer holistic financial planning services as well as investment guidance, while a portfolio manager or investment manager may deal strictly with a client’s investment portfolio.
While someone with one of these titles will likely give investment advice, and thus need to register as an investment advisor, you should always double-check that they’ve done so through BrokerCheck.
7. Robo-advisor: A robo-advisor is an inexpensive automated investment management service. Robo-advisors use computer algorithms to create and manage an investment portfolio based on your goals, for as little as 0.25% of your account balance per year. If you just want help managing your investments, a robo-advisor might be the right option for you. Check out some of the top picks for robo-advisors below.
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